Chairman & Chief Executive Overview
John Dunne,
Chairman
Sean Dorgan,
Chief Executive
In 2005, Ireland and IDA Ireland continued the transition to more high-value and knowledge intensive economic activities. As a small, very open economy we know that competitiveness, flexibility and innovation are key to our economic development. Government strategy is clearly aimed at developing and maintaining an ever more dynamic enterprising and innovation based economy, which can sustain higher living standards and an improved quality of life for all.
Over recent years we have seen clearly the extent of change in global business and the opening up of new competing locations for investment. These factors have created challenges for Ireland which we have successfully met. Central to our continued progress has been a shared national vision of development, openness to change, and our unique cultural way of innovating and of connecting the essential elements for advancement.
Ireland continues to win international investments because it is recognised as a business location where the workforce, in addition to being highly qualified, has a unique capacity to improve, to innovate and to initiate new ideas, new processes and new methods of operating that can make business more dynamic, more efficient, and ultimately more profitable.
IDA will be building on this reputation with a new marketing campaign that will highlight the features of the Irish mind and its value to business innovation. We illustrate some of the key aspects of that theme in this annual report.
Dynamic shift in Investment profile
The Irish economy has performed very strongly over the past number of years and is much admired internationally. The level of foreign direct investment (FDI) in Ireland, relative to the size of the economy, is one of the highest in the world. Today, over 1,000 overseas companies have substantial international operations in Ireland. These include many of the leading companies in information technology and communications, life sciences, international services, engineering and financial services.
Competition for FDI is relentless and global. Its nature has noticeably changed. Investors now have a myriad of location options for each part of their business process. Global corporations can organise and engineer their businesses in physical or virtual form and select the most effective location for each element. In doing so, they seek three essential ingredients: the right people and skills, a supportive ecosystem and infrastructure, and a positive and forward-looking attitude. These are distinctive features of Ireland.
Ireland has re-invented its attractions for inward investment over the past seven years, recognising changes in global conditions and in our own circumstances. Now we are distinguished for the quality of our national capabilities as much as for the efficiency of our performance. Investors comment on the nimbleness and coherence with which change is achieved in Ireland. These are features that matter in the fluid, connected, highly competitive world of globalised business.
There have been many contributors to this transformation, at Government level, in educational and other public institutions, and in the business sector. Each has pursued improvements in order to be more competitive at more advanced levels of activity. There have been many strong partnerships involved. In the case of multinational companies in Ireland, recent years have seen new investments in production and service facilities and, increasingly, in R&D and other innovation activities.
The value of inward investment must now be judged on its nature and quality rather than in quantitative measures or job numbers alone, as before. Today's investments are characterised by their leading-edge nature, in terms of technology, such as in Amgen and Intel, or their market innovation, such as in eBay and Google. They are increasingly reliant on a highly skilled workforce. They require an agile, flexible and responsive operating environment.
Reflecting the changes in the nature of investment, IDA Ireland is continuing with the use of a number of performance indicators that we introduced last year. These indicators, on page 18, are more relevant to an advanced economy and supplement the traditional quantitative measures.
Progress in 2005
Our challenge in IDA has been to ensure that the investments we secure are innovation driven, technologically advanced and with the highest calibre of employment creation. We also strive to achieve good regional balance in investments. In each of these regards 2005 was a good year:
- 71 investment projects (greenfield and expansion) were supported in the year with 46 of these locating outside Dublin,
- Some 50 R&D projects were supported involving a total investment by business in excess of €275 million - a record in number and value and a 95% increase in value over 2004,
- Over 50% of the jobs supported in 2005 will require third-level or higher qualifications, in various disciplines including IT, financial services, science and engineering,
- Close to 40% of all new jobs in IDA-backed projects now earn in excess of €37,000 per annum,
- There was a net increase of 3,412 (or 2.6%) in the number of permanent jobs in IDA-backed companies.
These achievements come about through extensive work with new investors, such as Amazon and Amgen, and by supporting the growth and development of existing clients here such as Citigroup and Wyeth, often increasing the value-add and strategic importance of their Irish operations with additional functions and activities. Especially noteworthy was the progress made in the year in winning significant R&D investments.
Among many companies currently investing strongly in their operations in Ireland are Johnson & Johnson, Intel, Centocor, Pfizer and Wyeth, while eBay, Google, Lake Region, Merrill Lynch and State Street, among many others, are growing their employment also.
Regional successes in 2005 included substantial expansions from PFPC and Waters Corporation in Wexford and the opening of a new PFPC centre in Navan. In Waterford, BISYS announced a new funds administration centre and Bausch & Lomb committed to a €42 million investment in its contact lens plant. International Fund Services (IFS) opened new fund centres in Naas and Drogheda. In Sligo, Toucan commenced a telecommunications service centre. In Letterkenny, SITA expanded its software operation and Zeus Industrial Products located its new European Operations Centre. AXA Assistance SA chose Athlone for its second Irish operation.
The year was also notable for the strong performance of the international financial services sector. In addition to the investments already noted, many IFSC companies increased their businesses in Dublin, new niche players entered the sector here, and the standing of Ireland as a European base was strengthened by the arrival of The Hartford Financial Services Group among others.
Research and Innovation
Ireland is now a global competitor for R&D investment from multinational companies and leading research institutions. We are seeing the results of a concerted effort in Government policy to build a substantial foundation of world-class science and technology in our academic institutions and, in particular, the encouragement of strong business and academic collaborations. This is enabling the build-up of meaningful research and development capabilities of Irish based business, a step that is fundamental to Ireland's future competitiveness and sustainable growth.
Each investment made by companies in research or innovation, or by agencies such as IDA in the supporting science and engineering infrastructure, should be a factor that will differentiate us from competing locations and therefore underpin existing or new employment here. The benefits of investment in research are indirect and not always readily measured; however, we know from experience in IDA that a commitment to R&D in a company strengthens its strategic position and its roots in Ireland. We will, therefore, be continuing to increase our support for R&D developments over coming years.
The many significant R&D investment decisions in 2005 included Microsoft's establishment of a software R&D centre at its European operations in Sandyford. Leading companies such as Bristol-Myers Squibb, Citigroup, Genzyme, Pfizer and Xilinx are investing over €50 million in new leading edge R&D projects and research facilities to develop world class products, processes and services for their international markets. Dell is establishing an engineering centre of competency in Limerick, which will involve extensive collaboration with research groups at the University of Limerick, and Palm is locating a software applications R&D centre in Swords.
During 2005, IDA committed funding, with Government agreement, to the establishment of the National Institute for Bio-processing Research and Training (NIBRT). This is a strategic investment in a state-of-the-art, industry focused institute that will give Ireland a competitive advantage in serving the global biopharmaceutical industry. UCD, TCD, DCU and Sligo Institute of Technology are foundation members of NIBRT, which will be based at the UCD Industry Park in Dublin. This type of support, which was novel for IDA, is indicative of the kind of intervention that will increasingly be necessary to create a world-leading ecosystem for specific business areas in Ireland. Page 15 illustrates the powerful national collaborative network facilitating the vitally important research and development agenda.
The Key Role and Value of Foreign Direct Investment (FDI)
Ireland has now established an enviable reputation globally as a location for advanced manufacturing, sophisticated business services and, increasingly, for leading research and innovation. Each of these areas will be of critical importance to our continuing success.
Internationally, manufacturing activities continue to transform: some elements migrate to lower cost locations, but the more advanced, complex, sophisticated manufacturing, frequently involving capital investment of €1 million per employee, has a critical value creation role in all developed economies including Ireland. This manufacturing will create high export values, introduce leading-edge technologies and foster related R&D activities.
Most of the world's major pharmaceutical and medical technology companies have substantial manufacturing activities in Ireland, such as Pfizer, Johnson & Johnson and Wyeth, as do many electronics companies - for example, Dell, HP, IBM and Intel. In each of these cases, their success here depends critically on the performance of their workforces, their ability to meet the highest global regulatory and other standards, and their agility in adjusting to changes in their markets and environments.
Advanced manufacturing needs high levels of productivity to compete against low cost locations. A growing proportion of manufacturing employees will have third level (or higher) qualifications to manage, support or develop the complex processes involved. Ireland is well positioned with the engineering and technical skills we produce, but we must continue to maintain a high interest and student engagement in these areas.
Ireland has a strong track record in capturing foreign direct investment in service activities, from the 1980s when the potential of software and financial services was identified, the 1990s when IDA led the way in Europe in shared service centres, and 2000 when e-business was targeted.
Globalisation, the continued development of computing and communications technologies, business re-engineering and the liberalisation of trade (including further freedom of services within the EU), will all contribute to the growth of services internationally.
Ireland is exceptionally well positioned to benefit from these trends. We have developed expertise and competencies to manage business activities with EMEA (Europe, Middle East and Africa) or global mandates. The combination of skills, a congenial and supportive business environment and low taxes have already attracted many business integration and headquarter functions here, in areas such as sales and marketing, procurement, supply chain management, regulatory and compliance functions, and intellectual property management.
Regional Development
IDA is committed to achieving the best possible regional balance in investments. We have a strong role to play because of the mobilising and energising effect that the reality, or the prospect, of substantial new investments can have in any place. The impact from new inward investment can be seen in many towns over recent years - for example, Pacificare and Pramerica in Letterkenny, MBNA in Carrick on Shannon, Guidant in Clonmel and Kostal in Mallow.
The challenge of good regional spread in investments increases as the higher value parts of business value chains are targeted. Then, the need for a critical mass of qualified talent, supporting infrastructure and sophisticated business services can draw investors towards cities. The competition for such investment is intense and unrelenting from a growing number of locations across the globe.
For most of the investments IDA competes for each year, the competition is from city regions with a population base of over a million people. In Ireland, only Dublin has a population of this size. Other cities and towns are small in global terms. For this reason, every location in Ireland has to think and act regionally, rather than locally, if it wishes to succeed. The National Spatial Strategy sets out the framework for development in this way and needs to be followed by all economic and social actors.
Success will be attained not by any one agency alone but by the combined efforts of many. IDA plays its full role across the country, working with others, by seeking to build on existing regional strengths and adding to them:
- We work closely with the existing base of companies to add to their capabilities and functions, and - with their valued cooperation - use the experience and expertise they have created as a reference to persuade others to do likewise. The success of the medical technologies industry in the West, centred on but not confined to Galway, is a fine example of this.
- The Institutes of Technology and Universities enhance and deepen the skills and talents available and are frequently key to persuading investors to locate near them. There are many notable examples of Institutes, in particular, tailoring courses to the specific needs of companies. We recognise that education is the essential foundation on which a successful economy and a fulfilling society is built, and we commend all involved for their contributions to what has been achieved.
- We seek, with the help of others, to create new magnets of attraction in locations as a reason for further investments to go there. A specific example of this was the announcement in early 2006 of the decision of Georgia Tech Research Institute (GTRI), with the support of IDA, to locate its first research facility outside the US in Athlone. The enthusiasm of companies such as Elan, Ericsson and Intel for this was an important support for the decision.
- We are developing Business and Technology Parks in key locations for the full range of potential investors, including indigenous companies under the aegis of Enterprise Ireland. Private developers provide advance office and technology buildings on these parks, to IDA's specifications, as a facility for early start-up for incoming investors.
- We are developing infrastructure-rich sites for utility-intensive industry in Cork, Dundalk, Galway and Waterford. The concentration of the pharmaceutical industry in Ringaskiddy in Cork shows the merits of such an approach, as does the success of Grange Castle in South County Dublin. We have already obtained advance planning permissions for a major biopharmaceutical campus in Oranmore, County Galway and for an integrated circuit manufacturing facility in Grange Castle, County Dublin, which offers potential investors certainty and considerable time saving when they decide to locate there.
- In 2005, we spent over €69 million on our business parks, advance facilities and related infrastructure, all aimed at achieving balanced regional economic development.
- The existence of ready property solutions is key to the successful marketing of any location, but it is never sufficient in itself. The cooperation of very many private and public bodies is also critical; local authorities in particular are of profound importance and we in IDA Ireland acknowledge their tireless support. Many investments have been won as a result of their efforts; in this regard, we in IDA Ireland particularly thank Cork County Council for their part in winning the Amgen investment, which was announced in January 2006.
Nationally and regionally, every investment is won by the combined efforts of many people pulling together. We in IDA commit to continuing in this way with our many valued partners.
Differentiating Ireland
Each investment decision that is made in favour of Ireland has been influenced by the quality of the performance and the results of existing investments, either by the company directly involved or, frequently, by its competitors. Thus the outstanding record of the pharmaceutical industry here is a compelling reference for depth and quality of the human and technological skills available. Similarly, the achievements in information technology and software give assurance to companies in this sector on the wisdom of committing to further investment in Ireland.
From a standing start less than twenty years ago, we have shown an ability to grow and run international financial services, including the administration of almost one-third of hedge funds globally. In the past five years we have become a major centre for new Internet-based businesses.
In previous reports we have identified three major ways in which Ireland meets the evolving needs of international companies:
- World class innovation and development
- Superior performance and efficiency
- Cutting-edge business integration and support.
Our success in relation to each of these attributes can be ascribed to fundamental factors such as good skills availability, a supportive ecosystem and infrastructure, and our low taxes on business. These are available also, to one degree or another, in many other locations around the world.
What is different in Ireland is the way in which we tackle issues, solve problems and seek other new and better ways to meet needs. It is evidenced in the speed, agility, flexibility and responsiveness of public agencies and private bodies. It requires ambition, vision, cooperation and partnership among many players. It reflects a mindset and an approach that is innate, and which is likely related to the creativity that has been manifest in the Irish literary and artistic tradition.
This is what we will be conveying in our new promotional campaign on The Irish Mind.
Challenges and Risks
Continuation of the success that has been achieved in recent years is not inevitable. There are many factors, within our own control and otherwise, which may impact on our ability to sustain rapid growth and high employment levels. A key factor is cost competitiveness, particularly related to property and construction demand, energy costs, local authority charges and services where competition may be limited. Continued flexibility in responding to changes in both local and international economic conditions is also essential.
The pace of economic growth makes further investment in education critical. This needs to build on our strong relative position in producing science, engineering and business graduates, and reverse some movement away from the sciences by students in recent years.
Rapid improvement in physical infrastructure is also a pressing need, especially to support regional development. Good progress is being made in road development, but the delivery of public transport in cities and airport facilities must be quickened to meet some current and future demands. Similarly, long term decisions in relation to the electricity and other energy markets must be addressed.
Global business is in a state of significant flux in the face of differing economic prospects around the globe, new competitive threats and uncertainties, and unrelenting pressures from technology advances. These challenges are faced, both in their global business and in their Irish operations, by each of the companies with which IDA works.
It is to the great credit of many Irish managers and their workforces that they have so readily adjusted to this continuous flux. They have initiated and innovated without waiting for direction. They have thought on their feet, adapted and improved. They have worked together to do things better and faster. Their agility is a reason to be confident about the sustainability of so many investments, and about our future.
We are also confident because we see a strong interest in further investments in Ireland, from both existing companies and some that will be new to us. The pace at which these developments will be brought to fruition is never certain, but we know that Ireland's consistent performance and IDA's polite persistence pay off.
The staff of IDA
achieve outstanding results through their hard work and dedication.
They rise
to every challenge and make contributions of which they can each be proud.
The
Board wishes to acknowledge and thank every IDA employee for their endeavours.